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Monetary Policy

Monetary policy is a term used to refer to the actions of central banks to achieve macroeconomic policy objectives such as price stability, full employment, and stable economic growth. Central banks influence the amount of money and credit in an economy, which impact on interest rates and economic activity. 

The Bank of Mauritius is mandated to conduct monetary policy and manage the exchange rate of the rupee, taking into account the orderly and balanced economic development of Mauritius. 

On 16 January 2023, the Bank introduced a new framework for the conduct of monetary policy. With the new framework, the Bank is explicitly adopting an inflation target, providing a benchmark against which members of the public can gauge inflationary pressures and assess the Bank’s success in keeping inflation under control. This will contribute towards the formation of inflation expectations and facilitate decision-making in financial markets, by providing a concrete indication as to the future direction of policy actions. The framework will also promote greater transparency on the monetary policy decision-making process, while adopting a forward-looking approach. Additionally, the framework will embed stronger communication about the stance of monetary policy and the operations undertaken by the Bank.

With the new framework, the existing Key Repo Rate is being replaced by the Key Rate (KR) as the policy rate to be determined by the Monetary Policy Committee. Changes in the policy rate affect economic activity and inflation through several channels. Lending and deposit rates of banks are adjusted more or less in line with changes in the KR. These changes, in turn, affect the spending, saving and investment behaviour of individuals and firms in the economy. Changes in policy rates also affect expectations about the future course of the economy as well as asset prices and the exchange rate of the rupee. Exchange rate movements affect the domestic prices of imported goods, thus impacting on overall inflation.